EUR Momentum is not to Specs Liking

Finally, today the US populace goes to the polls to elect their President, all members of the House of Representatives, and about a 1/3rd of the 100 members Senate. The billion dollars that both parties spent on advertising was becoming a little too nauseating. Predictions see a status quo result as most likely, with President Obama re-elected, the House staying under Republican control, and the Democrats maintaining a simple majority in the Senate. However, two other scenarios could occur. Mitt Romney as the new President and he will be with or without the control of the Senate.

Expect a Romney win to influence the markets along three themes a) Regulatory (a possible win bringing forth some regulatory relief; a plus for stocks, business confidence and risk. B) Monetary perspective (a win would give us a new Fed head in two-years. What will that do to current bond yields? It can only push them higher. c) And the Fiscal Cliff (Mitt winning would certainly address the G20 Fiscal Cliff concerns in a different light). In this winning scenario playing field, the â€˜big dollarâ€™ will look to out perform the EUR and JPY and negative against risk sensitive currencies. Make it easy; do not look beyond the above three themes for market guidance. Too much more noise will only complicate any trading decisions even further!

This morningâ€™s data reveals that UK IP was weaker than expected in September (-1.7% m/m and -2.6% y/y) as oil and gas extraction posted their biggest monthly fall on record. Following a huge shock for Q3 GDP, sterling had been eyed as the â€œbest buy of a bad bunch.â€ The recent run of bad news, and amid a heightened belief that Q3 data will be revised heavily, has cable looking vulnerable to a stronger sell off. What is the BoE to do this Thursday, if anything? Recent set of economic releases does not make their decisions any easier. Will policy makers embark on another round of QE? The oil and gas sector was the culprit for most of the disapproving headline, extraction decreased -20.9%.

A) Growth in China having gone from being seen as â€œmore uncertainâ€ to having â€œstabilizedâ€
B) Consumer strength in H1 that was seen as â€œtemporaryâ€ last month is now described as â€œongoingâ€
C) Wording about the housing market has turned slightly more constructive;
D) And finally interest rates to consumers have gone from being â€œa little belowâ€ their averages to â€œclearly belowâ€ average.

Policy makers are beginning to see signs that lower rates are impacting the economy via business demand for credit, stronger housing, and stronger equities. Is it not interesting that the RBA has done nothing despite being vocal about the AUD itself; the currency â€œremains higher than might have been expectedâ€?

Already this morning the FX market has seen respected Asian investors buying EUR/JPY, while Russian commercial names have been buying the single unit outright, pushing the EUR to test again above the 1.28 benchmark. Judged by this mornings follow through, the spec market is little more than short the EURâ€™s. The lack of bearish momentum remains the EURâ€™s key risk. The stop losses located above 1.2828 already look vulnerable. The market is predominately short and relying on the fact that the market has broken below the 200-DMA (1.2830) targeting 1.2740-50 level. There is a rumor of a +7m EUR option payout at 1.2775 expiring today. The market continue to prefer to be a better sell of EURâ€™s on rallies

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Dean Popplewell has nearly two decades of experience trading currencies and fixed income instruments.
He has a deep understanding of market fundamentals and the impact of global events on capital markets.
He is respected among professional traders for his skilled analysis and career history as global head
of trading for firms such as Scotia Capital and BMO Nesbitt Burns. Since joining OANDA in 2006, Dean
has played an instrumental role in driving awareness of the forex market as an emerging asset class
for retail investors, as well as providing expert counsel to a number of internal teams on how to best
serve clients and industry stakeholders.

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